Canadian Dollar gains support from higher oil prices amid Saudi pipeline disruptions

The Canadian Dollar (CAD) experienced a temporary setback on Monday, trading near 1.3870 amid a three-day upward trend. The Canadian Dollar benefitted from higher oil prices following a drone attack that forced Saudi Arabia to temporarily halt a major crude pipeline. This disruption impacted a crucial route used to bypass the Strait of Hormuz.

Analysts at Scotiabank attribute some support to front-end US/CAD spreads that have remained stable despite increased focus on US rate policy. However, the USD/CAD pair could rebound if the US Dollar gains strength due to expectations of a rate hike by the Federal Reserve following higher US inflation reports. The US Consumer Price Index (CPI) rose by 0.4% month-over-month in August, hitting a 3.4% annual increase, which aligns with market expectations.

The Bank of Canada (BoC) plays a significant role in determining the CAD's value through interest rate adjustments aimed at maintaining inflation at 1-3%. Canada's economy and its trade balance, which reflect the difference between exports and imports, also influence the CAD's performance.